Cisco (CSCO.US) Q1 revenue up 24%, strongest in 15 years; AI infrastructure revenue expected to double to $9 billion, shares surged over 8% after hours

According to Zhitong Finance APP, networking equipment giant Cisco (CSCO.US) released its Q1 FY2027 financial results after market close on November 12 (EDT), with both revenue and profit surpassing expectations, and raised its full-year guidance. Revenue for the quarter reached $18.52 billion, a year-on-year surge of 24%, marking Cisco’s strongest revenue growth in nearly 15 years and significantly exceeding the LSEG consensus estimate of $18.1 billion. GAAP net profit was $4.6 billion, up 59% year-on-year, with diluted EPS of $1.14. Adjusted EPS was $1.40, up 40% year-on-year and beating the consensus estimate of $1.33. This marks the sixth consecutive quarter that Cisco’s earnings have beaten expectations.

The main growth engine was the networking business. Networking revenue for the quarter reached $11.13 billion, a staggering year-on-year increase of 43%, which propelled overall product revenue up by 32%. Security (including Splunk) rose 7% to $2.12 billion, collaboration grew 8%, and observability business increased 2%. All three major regions (Americas, EMEA, Asia Pacific) achieved double-digit growth. Remaining Performance Obligation (RPO) rose to $46.17 billion, exceeding market expectations and indicating a robust order backlog—confirming management’s view of a “sustained demand cycle.”

AI was the primary narrative behind this quarter’s performance, and has now translated from expectations to actual orders. In the previous fiscal year (FY2026), Cisco secured $9.3 billion in hyperscaler AI infrastructure orders, approximately 4.5 times that of the previous year. About 60% of this came from networking systems powered by its self-developed Silicon One chips, and 40% from Acacia’s high-speed optical interconnect products—with Acacia’s single-quarter orders exceeding $1 billion. Based on this momentum, the company raised its forecast for hyperscaler AI infrastructure revenue for the current fiscal year from $7.5 billion to $9.0 billion—more than double the actual level of the previous year. Management indicated that the rapid deployment of agentic AI is driving data center demand for switches, routers, and 400G/800G high-speed optical interconnects from AI processors to networking equipment. Training and inference are now extending to cloud, on-premise, and edge environments, and Cisco is capitalizing on this to join the generative AI infrastructure wave it previously missed.

However, this period of rapid growth has also raised concerns over earnings quality. Due to the rising share of AI-related hardware (hyperscaler switches, Silicon One, Acacia optical modules), adjusted gross margin for the quarter was 65.6%, down 2.5 percentage points year-on-year. GAAP gross margin was 63.7%, declining by 1.8 points year-on-year. This is the market’s main concern recently—earlier this month, Morgan Stanley downgraded Cisco for the logic of “AI hardware’s immediate revenue recognition diluting margin before software revenue kicks in,” resulting in a temporary stock price drop. Still, scale efficiencies continued to be realized, with adjusted operating margin reaching a record high of 37.8% (market expectation was 36.1%), and operating cash flow rose concurrently, driving profit growth significantly above revenue growth and partly offsetting gross margin pressure. Management also noted risks such as tariffs, component costs driven up by memory chip shortages and supply chain constraints, as well as customer concentration risks among large hyperscalers.

Looking ahead, Cisco significantly raised its full-year guidance: FY2027 revenue is now expected to be $74.8–75.8 billion (previously $72.2–73.4 billion), and adjusted EPS to $5.47–5.53 (previously $5.05–5.11). For Q2, the company expects revenue of $18.0–18.2 billion and adjusted EPS of $1.34–1.36, both notably above market expectations (revenue $17.88 billion, EPS $1.23).

Chairman and CEO Chuck Robbins stated, “We are in the early innings of a multi-year networking supercycle, and enterprises are seeking Cisco’s help to scale, secure, and optimize for the agentic AI era.”

CFO Mark Patterson described the quarter as “another record-breaking quarter,” with revenue, operating margin, and EPS all exceeding the top end of guidance, and promised that profit would “hit the bottom line at an even faster pace,” with operating leverage being unlocked. The company also revealed that Cisco is building software tools to help enterprises develop their own AI agent armies to defend against cybersecurity threats, extending AI capabilities into security and observability domains.

In terms of stock performance, Cisco closed up 1.24% at $102.01 in regular trading on November 12, surging more than 8% after hours. Year-to-date, shares are up about 32%, significantly outperforming the Nasdaq (+9%) and S&P 500 (+10.9%) over the same period. However, compared to its early November high, the stock has pulled back notably since Morgan Stanley’s downgrade, and recent signals from the US midterm elections indicate rising opposition to data center projects, which has also weighed on the stock’s recent performance.